Elon Musk’s acquisition of a hefty stake in Twitter has set the business world alight with speculation about how this corporate governance debacle might be resolved.
Last week Musk, the world’s richest man, founding chief executive of Tesla and SpaceX, bought a 9.2% stake in Twitter. He filed his form 13D with the US financial regulator announcing his “beneficial ownership”, and a standstill agreement protecting the status quo at Twitter.
The company invited Musk to join the board. But this week, in another regulatory disclosure, Musk said he would not be entering the boardroom—at least, not as a member. He did, however, say he might sound off about Twitter to the current management team, or using his Twitter account, on issues such as mergers and acquisitions as well as “strategic alternatives, the business, operations, capital structure, governance, management”.
Rarely can there have been a corporate governance predicament like it. Outside looking in, Musk will cast a giant shadow over the social media giant, its board and the future of the business.
Having Musk decline a seat at the boardroom table presents a problem. Richard Leblanc, a professor of governance at York University, Canada, and a keen observer of US business affairs, says there is a big difference between being a board director and a shareholder.
Investors can advocate for self-interested change in a “public and unbridled way”. A director, meanwhile, has a “fiduciary duty” to act in the best interests of the company, a duty shareholders do not share. Directors are also covered by a duty of confidentiality and blocked from going public with sensitive information.
“If, or when, an activist investor is invited onto a board, the fiduciary duty, the duty of care and the duty of confidentiality now exist and apply to the new director,” says Leblanc.
A new type of activism
What seems clear is that Musk has remained outside the board likely so he has room for manoeuvre. But manoeuvre for what?
With 8.4 million followers on Twitter, Musk is famously concerned about freedom of speech and the platform’s posting policies and has also suggested he might launch his own social media outlet. He could be investing for a return, he might be trying to influence the policy future of what has become the world’s “Town Hall”.
According to Josh Black, editor-in-chief of Activist Insight, a specialist publication monitoring activist investment, Musk’s motivation remains unknown. He has a financial interest in the business now but “could probably also afford to lose money on his investment”.
That raises another possibility. “Musk’s interaction with Twitter could be an example of a new type of activism by rich individuals without limited partners, such as Carl Icahn at McDonald’s and Kroger, where the nature of the demands can be much more personal to the investor.”
Once invested in the fast food chain, Icahn’s interest was less about shareholder value than it was about animal welfare, specifically the treatment of pigs. In a letter to the chair of retail giant Kroger, Icahn touched on conditions at factory farms but also the company’s general approach to ESG and a worry about the scale of CEO pay compared to median workers which he described as “unconscionable”.
Unconventional approach
The pursuit of “personal” concerns doesn’t necessarily have a boardroom playbook, according to Black, but that may not mean it is impossible for the Twitter board to work with Musk. Black says the “old rules of engaging the shareholder base and satisfying the top investors’ expectations for board oversight and stakeholder management should work in these circumstances.”
That said, Musk has such a large stake the Twitter board might also want to prepare for a hostile bid.
In a commentary on Musk’s investment, Judge Business School strategy expert Hamza Mudassir says Twitter is now a “far more interesting company than it was a few days ago”. If that is so it is because of Musk, who never fails to attract attention with his unconventional approach to business and governance (he has already faced fines from financial regulators).
Musk and Twitter make an irresistible governance spectacle. He may yet end up in the boardroom. He may continue to troll the board using their own platform.